S.Korean lenders in New York luxury hotel likely to see losses

Some South Korean institutional investors may see significant losses on their investment in a hotel in the heart of New York as the developer has defaulted on its loan.

Korea’s Hana Securities Co. invested $86 million in mezzanine debts in the Margaritaville Resort Times Square Hotel in February 2019 and created two US private real estate funds via Seoul-based Global One Asset Management Co.

Hana and local brokerage houses sold the funds to four undisclosed domestic institutional investors. The funds mature at the end of this year, according to banking sources.

Meanwhile, the hotel developer Soho Properties filed a bankruptcy petition under Chapter 11 protection in July to stop a foreclosure auction after Soho was said to have defaulted on a $57 million loan offered by US real estate fund manager Arden Group Inc., according to media reports.

The Manhattan-based real estate developer filed its second bankruptcy petition earlier this month.

In the filing, the debtor said it is negotiating a loan with Cirrus Real Estate Partners for a 12-month initial term with a three-month extension in the total sum of $170 million to refinance the senior mortgage in its entirety and provide immediate liquidity for the hotel’s other debts.  

If Soho’s bankruptcy petition is denied, the Korean mezzanine lenders are unlikely to recover their principal in the subordinated debts.

The 32-story, 234-guest-room hotel opened in 2021 near New York City landmark Times Square. It has seen operating shortfalls due to the pandemic-driven impact on the hotel industry in recent years.

Write to Byeong-Hwa Ryu at hwahwa@hankyung.com

Jihyun Kim edited this article.